Nixxy, Inc. quarterly report, Q3 FY2021

Business context and reporting period

This is Recruiter.com Group, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021, filed November 15, 2021. The request identifies Nixxy, Inc., but the supplied filing is for Recruiter.com Group, Inc.; confirm the issuer before relying on this summary. Recruiter.com operates an online, AI-enabled recruiting platform and provides recruiter-on-demand, placement, marketplace, consulting, and staffing services.

Financial performance and position

Revenue growth was principally attributed to Recruiters on Demand, with additional contribution from newly launched software subscriptions, acquisitions, placement fees, and consulting and staffing. Gross margin improved year over year, which management attributed to a more favorable mix of higher-margin offerings. Operating costs rose substantially, including $2.53 million of goodwill impairment, $1.68 million of nine-month intangible amortization, and $3.54 million of nine-month share-based compensation.

At September 30, 2021, cash was $5.35 million, current assets were $10.82 million, current liabilities were $7.55 million, and working capital was approximately $3.28 million. Total assets were $29.35 million and total liabilities were $10.71 million. Loans payable totaled $4.92 million, including $1.75 million current; convertible debentures had been fully converted by quarter-end. Accounts receivable was $5.16 million, up from $0.94 million at December 31, 2020. Cash at November 9, 2021 was $3.66 million.

Material changes versus the prior comparable period

• Third-quarter revenue increased 214% and nine-month revenue increased 124% year over year. Recruiters on Demand was the largest stated growth driver.
• The third quarter moved from net income to a substantial net loss; nine-month net loss also widened. Results included impairment and amortization charges, share-based compensation, interest and debt-cost expense, and changes in warrant-derivative fair value.
• Operating cash use increased to $6.99 million for the first nine months, from $1.93 million in 2020. The increase included significant growth in accounts receivable and spending to support expansion.
• Cash increased from $0.10 million at year-end 2020, supported by a July 2021 public offering generating $13.80 million gross proceeds. The offering and conversions of preferred stock and debentures also substantially increased common shares outstanding, to 14,394,329 at September 30 from 2,203,009 at year-end 2020.
• The company completed five 2021 acquisitions, including Scouted, Upsider, OneWire, Parrut, and Novo Group. Acquisitions increased goodwill and intangible assets; the company recorded a $2.53 million impairment related to the 2019 Genesys acquisition.

Outlook, risks, contingencies, and unusual items

• Management expects continued losses for a period of time, while stating it believes available cash is sufficient to fund liabilities and operations for at least 12 months from issuance of the financial statements. The company cannot guarantee positive cash flow or access to additional financing on acceptable terms; further equity financing could dilute shareholders.
• Management cited COVID-19 uncertainty, potential client attrition, reduced recruiting demand, and possible difficulty obtaining capital. It said it was investing in sales, marketing, and operations and expected recruiting demand to improve, but gave no quantified financial guidance.
• Internal control over financial reporting and disclosure controls were deemed ineffective due to material weaknesses, including insufficient staffing to segregate duties and provide adequate monitoring. Management expected to hire enough employees to remediate the weakness before year-end 2021.
• Two customers represented 23% of accounts receivable at September 30; one customer generated 14% of nine-month revenue. The company also relies on related parties for certain technology licensing and employer-of-record services.
• The company accrued approximately $250,000 for claims arising in the third quarter and paid $253,505 to two shareholders in October 2021 to resolve claims concerning securities allegedly owed, before any lawsuits were filed. The filing reports no other material pending legal proceedings.
• Acquisition-related contingent consideration and earn-outs, provisional acquisition valuations, goodwill and intangible asset estimates, and derivative valuations involve management estimates. Cash balances exceeded FDIC insurance limits by $4.44 million at September 30.

Important facts for investors to verify

• Confirm the issuer identity: the supplied filing is for Recruiter.com Group, Inc., not Nixxy, Inc.
• Review revenue growth quality, acquired-business contributions, gross-margin sustainability, and the sharp increase in receivables and operating cash use.
• Assess liquidity against scheduled loan payments and continuing losses, and verify the November 9 cash balance and management’s 12-month funding assessment.
• Evaluate dilution and potential share supply from the July offering, warrant issuances, acquisition consideration, options, and remaining preferred or warrant-linked securities.
• Track remediation of the disclosed material weaknesses and changes to the company’s accounting and financial-reporting controls.
• Review acquisition earn-out obligations, the Genesys impairment, related-party arrangements, and the October shareholder settlement.